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A federal district court in Georgia held that plan fiduciaries of a closely-held company’s single stock ERISA fund may have a duty to disclose material, non-public information concerning the value of the company’s shares when the information could have a potentially extreme negative effect on a plan participant. The plaintiffs were participants in defendant Stiefel Laboratories, Inc.’s (SLI’s) defined contribution stock plan. The plan terms permitted plaintiffs, under certain circumstances, to require SLI to purchase their shares at the price set forth in the most recent stock appraisal. Plaintiffs alleged that SLI encouraged them to sell their shares in SLI’s single stock ERISA fund for one-fifth of the amount they would have received as part of GlaxoSmithKline’s subsequent purchase of SLI. Plaintiffs argued that SLI and the plan fiduciaries had a fiduciary duty to disclose the impending acquisition, and that had they been so informed, they would not have exercised their rights to put the shares to SLI.

The court denied defendants’ motion for summary judgment on plaintiffs’ nondisclosure claim. In so ruling, the court relied on earlier decisions recognizing an affirmative duty to disclose under “special circumstances with a potentially extreme impact on a plan as a whole, or where participants generally could be materially and negatively affected.” The court distinguished recent Eleventh Circuit authority that plan fiduciaries do not have a duty to disclose material, nonpublic information to plan participants as being limited to publicly traded stock where the value is set in the open market and where a contrary rule would conflict with prohibitions on insider trading. According to the court, it was up to the factfinder to decide whether SLI’s “plans of going public” constituted “special circumstances” requiring disclosure. Central to the court’s decision was the fact that the plan participant was “in a vulnerable position” because he did not receive any warning that “investment in a non-diversified single stock fund was risky” and because he did not “have the benefit of the open market determining the value of his SLI stock.” Under these circumstances, the plan participant “did not receive the slightest hint that his shares would not be purchased at a fair market value.” To the contrary, the court pointed to evidence that the defendants communicated false information to him regarding the actual value of SLI stock and management’s plans about the future of the company, either of which the court held could have been actionable as affirmative misrepresentations. The case isWagner v. Stiefel Laboratories, Inc., No. 12 Civ. 3234, 2015 U.S. Dist. LEXIS 81464 (N.D. Ga. June 18, 2014).